(London Interbank Offered Rate) is an average interest rate estimated by leading banks that would be charged for inter-bank loans The rate is used as a bench mark for short term interest rates around the world.
The LIBOR scandal
arose when it was discovered that banks had been reporting higher rates than they actually had been charging as a means for increasing the interest rate. The Financial Times
published an article reporting that manipulation of the LIBOR had been ongoing since at least 1991. This implies that many people have been paying far more in interest than they should have. About 20 banks
have been named in investigations so far.
Barclay's, a large UK bank, admitted that it elevated its rate. The bank paid a 456 million dollar fine and the CEO resigned. At least twelve global banks
, including U.S. giants such as the Bank of America, Citigroup, JP Morgan Chase could face fines if found guilty of being involved. Estimates are that the rate hikes could have cost borrowers up to $22 billion U.S.
Now the banks are blaming their criminal action on free bank accounts.
Of course many bank accounts are not free. The ones which are usually charge fees for writing checks and many other bank services. Overdraft charges
and interest rate can be high. The banks make money by using your money that they loan at interest rates much higher than they pay on deposits. Many accounts do not even pay interest.
Now these cheaters want to press the government to mandate account fees so that they can take even more money from depositors! The CEO of Barclays
, Sir David Walker, obviously wants to recoup the $456 billion fine Barclays paid: He told The Sunday Teleigraph that the LIBOR scandals resulted from not charging for bank accounts. Sir David said:
‘One important barrier to competitive entry into the UK personal banking sector is obvious – the fact that the core product is usually given away for free, sold at below cost of production,’
If that is so it is surely common throughout industry and known as a loss leader. Rather than being a barrier to competition it is a means to compete!